FHA Loans Are Difficult to Obtain

29-what-is-a-fha-loanMost large banks have curtailed FHA-backed loans in the past two years because of concerns about credit and legal risks.

The rollback among big banks follows harsh penalties meted out by the Justice Department , which accused many banks of putting FHA on the hook for shoddy loans in the years leading up to the mortgage meltdown. Market shares at BB&T, Bank of America, Fifth Third Bancorp, Flagstar Bank, M&T Bank, Regions Financial and Wells Fargo have all declined in the past two years, the data shows.

Nonbanks have stepped into the void, and that shift is not expected to reverse until bank executives feel more comfortable with the credit profiles of many FHA borrowers.

In the second quarter, JPMorgan Chase originated just 340 FHA loans, compared with 19,111 FHA loans in the second quarter of 2013. Both B of A and Citi group have less than 1% FHA market share, though they had not been big players before.

B of A, Citigroup, JPMorgan and U.S. Bancorp have all settled claims that they improperly approved FHA-insured loans that did not meet the agency’s underwriting standards.

Wells Fargo, Quicken Loans, PNC Financial Services Group, Regions and BB&T still have outstanding investigations of FHA loans, according to company filings.

Meanwhile, credit quality has improved. FHA’s serious delinquency rate fell to 2.91% in the second quarter, from 3.5% a year earlier, according to the Mortgage Bankers Association.

National Mortgage News
Kate Berry